Kathmandu. The Securities Board of Nepal (SEBON) is preparing to further tighten the eligibility criteria for the company for the initial share issue (IPO). The board has published the draft of the General Eligibility Guidelines for Public Issue, 2083 and has sought suggestions from the stakeholders.

In the draft, the net worth per share of the corporate body should not be less than the face value. Currently, most companies are issuing IPOs at a face value of Rs 100 per share. If the proposed provision is implemented, companies with a net worth of less than Rs 100 per share will not be able to issue IPOs.

The draft has also proposed that SEBON can set separate criteria for minimum net worth for different industries. For the last few years, the board has been allowing IPO issuance to companies with a net worth of up to Rs 90 per share. However, now that the net worth has been raised to Rs 100, it will have a direct impact on the hydropower company.

If Sebon implements this provision, it will discourage hydropower companies from issuing shares.

The Independent Power Producers’ Association of Nepal (IPPAN) has said that the proposed new arrangement will directly affect the hydropower companies. According to Mohan Dangi, chairman of IPPAN, most of the hydropower companies preparing to launch an IPO have a net worth of less than Rs 100 per share.

“Not allowing a company with a net worth less than the face value to come up with an IPO is like not forming a hydropower company,” says Dangi.

The project does not go into profit without going into production.

According to him, such an arrangement would not be practical for the hydropower sector as huge capital is required for the construction of hydropower projects and there is pressure on the net worth of the company in the initial phase of project construction and operation.

He said that the net worth of the company could go below Rs 100 as various expenses and liabilities will be seen in the financial statements of the company before the completion of the project and the start of power generation and income.

IPPAN has said that the new draft of SEBON should also take into account the nature of the hydropower sector and the stage of project development. He argues that applying the same criteria to companies in all sectors could affect companies investing in long-term infrastructure such as hydropower.